Probability Modeling of Exchange Rate Fluctuation in Nigeria

Abstract

The Naira's value has continued fluctuating in comparison with other currencies due to its depreciation. Because of this fluctuation, returns are difficult to forecast. The core objective of this study is to find a unified probability distribution for modelling the exchange rate in Nigeria and this will contribute immensely to the existing body of knowledge. The continuous nonnegative exchange rate data from 1970 to 2021 was used for this research paper. Previous studies have demonstrated different probability distributions from others in the real sense. Therefore, the selection of appropriate probability distributions is of great importance. This study adopted ten continuous probability distributions. The graph of the probability density function and Chi-square goodness of fit statistics show that the probability distributions fit the exchange rate data. Meanwhile, the log-likelihood value and the AIC show that Fatigue Life (3P) distribution is best done compared with fitted probability models. Therefore, the Fatigue Life (3P) is Nigeria's unified probability distribution for the modelling exchange rate.